Report: Revenue 'Leakage' Hurts Mobile Entertainment

Of the $1.1 billion in 2007 sales generated by mobile music, video and games, more than $110 million in “revenue leakage” was lost due to antiquated collection and billing systems, according to a new report.

Scottsdale, Ariz.-based Multimedia Intelligence found that the growth of entertainment, which is spearheaded by short-form videos and episodic television, delivered to mobile devices has not been matched by equally robust systems designed to bill and collect revenue in real time.

With mobile digital entertainment revenue projected to surpass $1.9 billion by 2012, current global leakage estimates from 10% to 15% could result in more than $200 million in losses.

Leakage typically occurs when an online or mobile transaction is completed and the carrier or third-party (off-deck) vendor is unable to collect on that transaction.

The report found that many cell phone carriers operate billing systems originally designed to track long distance calls and not handle electronic commerce. For example, if a consumer has a prepaid account with less than $5 remaining and purchases a movie for $9.99 from a third-party vendor, that company can have difficulty collecting if the customer disputes the charge.

Frank Dickson, analyst with MultiMedia, said digital commerce services are highly regionalized with many entrenched within regional operators. As a result, he said they often eat the disputed charge rather than risk losing a customer and dealing with the high acquisition cost required finding a replacement customer.

“These [billing] systems are not robust enough,” Dickson said. “It's not like Visa.”

Dickson recalled the time his daughter allegedly bought $100 worth of ring tones, which showed up on the monthly AT&T bill. He said the carrier was willing to forgo several of the charges when it considered the $1-per-minute call center resources it was spending chasing a $2 ring tone.

“A lot of the areas in the billing cycle need to be improved,” Dickson said.

The analyst said companies such as Bango and OpenMarket have developed transaction software that not only tracks e-commerce in real time, it can determine the credit worthiness of a consumer.

“It's closer to a credit score for a loan,” Dickson said.

That can be invaluable, he added, when a sizable percentage of entertainment consumers fit a younger demographic likely to be on their parent's phone plan.